Major decentralized finance (DeFi) tokens Yearn.finance (YFI), AAVE and Compound (COMP) plunged steeply in the last 24 hours. The three DeFi tokens, which are valued well over $500 million, declined by over ten% on the solar day.

Yearn.finance, AAVE, COMP 15-minute chart (Binance). Source: TradingView.com

Three reasons why DeFi-related cryptocurrencies pulled back particularly hard are depression volume, the declining Ether (ETH) price, and the doubt around Bitcoin (BTC).

Even meridian DeFi tokens similar YFI and AAVE take comparably low volume

Compared to major cryptocurrencies, like Bitcoin and Ether, DeFi tokens have relatively low volume. This ways that when Bitcoin corrects, tokens with lower volume are at gamble of larger pullbacks.

In contempo weeks, DeFi tokens take shown signs of a lower correlation against Bitcoin and Ether, according to the pseudonymous trader "CryptoGainz." As such, regardless of whether the cryptocurrency marketplace is in take a chance-on or risk-off mode, the DeFi market rallied strongly in December. The trader said:

"DeFi is decoupled from btc and eth imo these assets aren't that liquid and they're getting a lot of interest from grown man money that does not [intendance] about whether the remainder of crypto is take a chance on or not."

However, short-term investors might have felt compelled to sell DeFi tokens when Bitcoin and Ether dropped virtually 10% within ii days.

The timing of the Bitcoin price drop matched with the DeFi market'south correction on Dec. 11. Every bit the BTC price started to decline from $18,400, leading DeFi tokens likewise began to correct.

YFI, for instance, the governance token of the Yearn.finance DeFi protocol, dropped 12% in the past 12 hours. In the same menstruation, the Bitcoin price recorded a 4.vi% drop.

The strong correction of DeFi assets comes as a surprise because of their recent momentum. As an instance, Cointelegraph reported that COMP rallied 56% in i week as the amount of capital locked in the Chemical compound protocol spiked.

Ethereum'southward momentum slows

Although the impact of the Ether toll on the DeFi market differs from protocol to protocol, Ether's value has a major effect on the overall DeFi market.

Most DeFi protocols revolve around investors lending and borrowing capital with Ether equally collateral. Hence, when the toll of Ether drops steeply, the total value locked (TVL) in DeFi would naturally fall.

Co-ordinate to data from Defipulse.com, the TVL across DeFi protocols declined from $15.xvi billion to $13.97 billion in the by four days. The sharp driblet in TVL coincides with the moment DeFi assets corrected.

The total value locked in DeFi. Source: Defipulse.com

Bitcoin cost uncertainty

In the brusk term, traders are cautious about Bitcoin's cost trend. Equally Cointelegraph reported, the imbalance in the Bitcoin options marketplace favors bears or sellers in the foreseeable future.

The combination of miners selling large amounts of Bitcoin unseen since 2017 and the lack of residuum Bitcoin options marketplace is causing heightened doubtfulness in the marketplace.

At the same time, information technology's also possible that DeFi can front-run Bitcoin to recover in the near future. CryptoGainz notes that DeFi altcoins with "potent narratives" are attracting long-term value investors. The trader argues:

"I accept no idea how funds are determining coin valuations, but at that place must exist pregnant upside from here since they are aggressively accumulating and not de-risking."